Linear Technology Exceeds Apple in Most Profitable Ranking

Oct. 12 (Bloomberg) -- Forget Apple Inc. The most
profitable large company in the U.S. is Linear Technology Corp.

According to earnings rankings by Bloomberg, the chipmaker
scores higher than any other company in the Standard & Poor’s
500 Index. The analysis gave equal weight to five variables,
including profit margin and return on invested capital.

Linear, which makes semiconductors for industrial equipment
and luxury cars, ranked above Microsoft Corp. and Apple -- two
companies with market valuations that are 30 to 50 times larger.
The chipmaker, whose customers include General Electric Co. and
Bayerische Motoren Werke AG’s BMW, has become profitable by
avoiding commodity consumer products and focusing instead on
industrial electronics, said Uche Orji, an analyst at UBS AG.

“Because it takes five to 10 years to design products for
industrial users, not many companies are willing to take the
risk and stay so focused,” Orji said.

Chips sold to industrial customers command a profit margin
of more than 75 percent, compared with 50 percent for the
consumer-electronics market, he said. While industrial buyers
account for 10 percent to 15 percent of the total semiconductor
industry, they make up 50 percent of Linear’s sales, Orji said.

“Ninety-eight percent of Linear Technology’s products are
proprietary ones, which means clients can’t get it from someone
else,” said Tore Svanberg, an analyst with Stifel Nicolaus & Co.
“Over the years the company has built up the best engineer team
in the industry, which develops better products than others.”

Stock Slump

Even so, Linear’s profit hasn’t translated into stock gains
-- or many endorsements from analysts. Shares of the Milpitas,
California-based company, which has a market value of $7 billion,
have tumbled 13 percent this year before today. That’s worse
than the S&P 500, which has fallen 4.9 percent in 2011.

Linear fell 3 cents to close at $30.22 today. The stock is
projected to climb 9 percent over the next year, according to
the average estimate of analysts surveyed by Bloomberg. Only
seven of the 22 analysts recommend buying shares.

Shares of Microsoft, meanwhile, are forecast to climb 19
percent over the same period, with an estimated gain of 26
percent for Apple.

Linear’s “stock is cheap,” said Manish Gupta, an
assistant vice president at First Eagle Investment Management
LLC, the company’s seventh-biggest investor with 7.36 million
shares as of June 30. “People are just scared about how bad the
economy could be.”